Impax is a market leading manager of both listed and private equity funds, which invest in ways that take advantage of more environmentally sustainable corporate and economic growth globally. Aggregate AUM at end January 2018 was £11.225bn.
We have updated and added FY19e forecasts post completion of Impax’s acquisition of US-based Pax World Management LLC. In addition to greater scale reflected in the £11.225bn end January AUM, that extended Impax’s product portfolio, marketing reach and client base. We expect an immediate boost to adjusted EPS net of (a) the cost of servicing new debt secured to finance the acquisition and (b) an issue of 2.66m new shares at 170p.
Margins should progressively benefit from increased scale and a broader, more diversified AUM base. We estimate that as at end January 2018, Pax, since renamed Impax Asset Management LLC (IAM LLC), represented c 32% of the enlarged group’s AUM and generated just under 40% of its ongoing run-rate revenue. We have, however, assumed no benefit from cost savings or synergies, as neither was part of the rationale for the acquisition; but see potential for efficiency gains.
Potential EPS enhancement is better than we initially projected. Fewer consideration shares were issued and FY18 PER is 17x vs 20x at announcement. The acquisition terms were assisted by favourable GBP/USD, although this is a sensitivity for Impax’s enlarged USD revenue base included in our forecasts. Current forecast end FY18 EV is 1.79% of AUM (£11.225bn at end January), falling to 1.68% based on our end FY18 AUM estimate.
Dividend growth is well covered by forecast EPS/cash generation. Projected FY18 cover is 3.2x vs 2.2x (FY17), net of cost of servicing new debt and scheduled amortisation. We assume 25% dividend growth for this year and FY19e, below the 38% increase in FY17. That is deliberately conservative.
Revenues may be affected by stock market volatility, but AUM growth momentum and the impending closure of the latest Private Equity fund drive fee income short term. Beyond that, we regard the combination as a potential sea change in group prospects, as Impax leverages its experience as an institutional fund manager to drive its acquired US institutional operation and offer new products to its existing client base.
